More of the Same for Wheat

U.S. Wheat Markets Grind Lower

It’s been more of the same for wheat complexes the past couple months, as markets continue to grind lower and into range-bound voids. U.S. markets performed fairly well through February as EU markets collapsed with cheaper and cheaper Russian wheat flowing into the cash markets.

But once China started cancelling U.S. orders in the first part of March, it was too much for bulls, and we saw a quick sell-off in soft red winter wheat CHI markets while KC and MGX markets remained overall in a grinding range-bound market.

Weighed Down by Russia

As noted, the Russian cash wheat values along with MATIF wheat market making four-year lows remains the giant anchor on U.S. wheat markets, and this is even more evident with the amount of wheat being offered on Egyptian tenders. This only emboldens cash buyers and short speculators to remain patient as the product is available, and rushing to get long coverage on is minimal at best.

You are seeing roughly the same situation domestically, as U.S. millers feel comfortable with available stocks as with less exports/China cancellations that is just having export terminals looking inward to unload positions, which also goes into direct competition with commercial elevators/producers.

It will be very interesting to see how this plays out as we get closer to bridging the gap of old crop/new crop and domestic buyers see the potential for a massive hard red winter wheat crop and not wanting to lug any additional ownership that isn’t absolutely necessary.

New Crop Thoughts

Looking ahead to new crop, besides a right hook by Mother Nature, it is tough not to see U.S. wheat stocks growing substantially with some traders looking for hard red winter wheat to grow 40% year-over-year.

Initial crop ratings coming into the spring growing season are also well above last year, and if we continue to get timely rains, it’s tough to see those get pulled lower.

This all being said, we have finally started to see some new crop export demand after being flatlined most of the winter. Still, there’s a long way to go if we are going to have so much extra wheat to move; you can argue U.S. wheat prices need to move materially lower still to take back market share lost the past few years.

As we move into spring, the market should still give a few rallies off seasonal/weather trends, especially spring wheat uncertainty, but expectations need to be managed as nothing on the horizon points to a change in the trend lower.

Theodore Nelson is a risk management consultant with StoneX Group Inc., Kansas City, MO; 800-255-6381.